Security, Counterterrorism, Education

Slavic immigrant connections found in Sacramento-area mortgage frauds

Inside the gates of the Crocker Ranch South development in Roseville, an attractive tan house with a tile roof blends in with the other homes on the tiny cul-de-sac.

The five-bedroom, three-bath home at 409 Lucera Court boasts 3,070 square feet of living space and was built in 2004 during the height of Sacramento’s superheated housing boom.

The house originally sold for $479,000 in November of that year. Just over two years later, the owners were able to sell it for $850,000, with the entire purchase price put up by a lender.

The buyer, an Antelope finish carpenter named Andrey Andreyev, seemed eminently qualified, submitting a loan application that listed an annual salary of $269,040, a Washington Mutual Bank account balance of $45,000 and additional rental income of $3,120 a month.

Except, according to allegations in a search warrant affidavit filed in federal court in Sacramento, “all of the aforementioned representations made on the loan applications were false.”

There was no Washington Mutual account, Andreyev’s annual salary was $30,471, and a Golden 1 Credit Union account he held around the time he bought the house had a balance of $559.36.

The tangled tale of the home on Lucera Court is a microcosm of dozens of allegedly fraudulent home sales, conducted as the real estate bubble began to pop. The massive federal investigation that resulted is focusing on members of Sacramento’s tightly knit Slavic community.

Five years since the peak of the alleged frauds, federal officials say they may be close to wrapping up most of their work probing what they describe as a labyrinth of straw buyers, crooked lenders and real estate professionals who conspired with and against each other in the cases.

“One of the things this case illustrates is just how kind of casual and easy this was,” U.S. Attorney Benjamin Wagner said during an interview last week in his office at downtown’s federal courthouse.

“At one point in time, before ’07 or ’08, it was pretty easy to rip off lenders in these kinds of schemes, and people who figured that out made a lot of money. … In this particular case, it’s kind of like you grab a piece of thread on a sweater and keep pulling and pulling and pulling.”

Since investigators began looking into the deals in 2010, 84 defendants – members of the area’s Slavic community from Russia, Romania, Armenia and other former Soviet bloc nations – have been indicted in a total of 30 cases filed in U.S. District Court, the latest coming in September. At least nine suspects are fugitives believed to have fled to their original homes in the former Soviet Union.

Three defendants have pleaded guilty and two of those have agreed to cooperate. Dozens of other members of the area’s immigrant Russian community were called upon to post property for bail and co-sign appearance bonds. Most of the defendants are free pending trial.

The cases are not believed to be part of one massive conspiracy. As they dug into allegations of fraud in the Slavic community, investigators say, they happened on new cases. Most of the accused are not citizens, but are permanent resident aliens in the country legally. Their status does not insulate them from deportation if convicted, which boosts the stakes.

R. Steven Lapham, the supervising assistant U.S. attorney overseeing the cases, said more charges will likely be resolved soon.

“You’ll be seeing more pleas after the first of the year,” Lapham said.

Division and disbelief

The fact that so many of the suspects are of Eastern European descent is a byproduct of the close-knit nature of the community of about 100,000 in the region, investigators and business leaders say.

Law enforcement authorities allege that the perpetrators used people they knew from their community centers, churches, neighborhoods and businesses – a common pattern in financial fraud schemes.

Those suspicions have caused divisions and new problems in the Russian immigrant community, some say.

“Most of our community doesn’t know any details about these cases and what’s going on unless they lost money or were in this business,” said David Ponomar of Afisha Media Group, which includes Russian radio, TV and print publications in Sacramento. “And the majority don’t believe this happened, they say it can’t be true.”

Florin Ciuriuc, executive director of the Slavic Community Center, said the Russian-speaking community shouldn’t be branded criminals because of the misdeeds of a few, but he believes the FBI probe hasn’t gone far enough.

“For honest Slavic immigrants trying to make America their homeland and achieve their educational and career goals, this is a slap in the face from those who wanted to screw the banks and the government and make themselves millionaires overnight,” said Ciuriuc, who came to Sacramento 20 years ago and serves as the community’s law enforcement liaison. “The feds still don’t have an answer to all those cases, they still don’t have the big fish.”

Ciuriuc said the banks that approved these deals and “put out the bait and made those Russian Realtors and loan officers go for it and look for victims” need to be held responsible.

“Why didn’t the feds arrest the people who were approving those fake loans, fake incomes and fake W2s that came from Russian loan officers and Realtors?” asked Ciuriuc.

As a result of the probe and its attendant publicity, law-abiding Slavic immigrants are having a tougher time getting home and business loans, Ciuriuc said. “They are triple investigated; even honest people will suffer because the reputation of the entire community went down.”

When the feds began to look into the cases in 2010, word spread quickly. Investigators said those involved tried to cover up their crimes.

Andreyev, the Antelope carpenter who purchased the Lucera Court house, tried to throw investigators off the scent of one of the very first frauds, which involved the Lucera Court home and 19 other properties, court documents allege. All the properties eventually went into foreclosure, costing banks and other lenders more than $16 million.

Andreyev was indicted in February along with his brother on charges of wire fraud and money laundering. He has pleaded not guilty and the case is pending.

Blaming the dead

Court documents filed in his case and others spell out detailed allegations of how the fraud schemes worked, and the steps participants took to conceal their involvement.

The FBI first came to talk to Andreyev in January 2011. Over the course of two conversations at his home, Andreyev insisted that all of the dealings he had in purchasing his $850,000 Roseville house were handled by a woman named Miraslava Chekin, court documents state.

Chekin was in no position to dispute his claim; she had been slain in Ukraine in June 2010.

Eventually, according to the documents, Andreyev told agents a different story, admitting he had never met Chekin. Instead, he fingered an area tax preparer named Vera Kuzmenko as the woman who allegedly orchestrated the deal.

Andreyev said he was having his taxes done at her office in 2007 when Kuzmenko asked him if wanted to buy a house.

When he replied that he didn’t have any money, Kuzmenko told him not to worry, that she would take care of everything, court documents state. When he said he really needed a truck, too, she told him if he bought the Lucera Court house she would throw in money for that as well, according to the documents.

Kuzmenko was indicted last year along with her brother and sister. She is accused of luring straw buyers she met through her tax preparation office.

She has denied handling any of the loans, and her lawyer, Bruce Locke, complained last week that the FBI overlooked the real culprits in the scandal: the banks and lenders.

“They always go after the little guy, never the big guy,” Locke said. “There was a lot of bad paper out there, but the money was the grease that made everything go.

“And, who supplied the money? Big institutional lenders, and nobody from any of them has ever been indicted.”

Bad loans sold

Locke said the Kuzmenko case is a good example of the little guy taking the fall. The loans came from First Franklin Financial Corp., a home mortgage lender that specialized in subprime loans.

A Seattle broker who worked for the company handled these loans. At the time, First Franklin was owned by Merrill Lynch & Co., which wanted to create a pipeline of loans that it could package into mortgage-backed securities. The money that funded the loans in the Kuzmenko case came out of a “warehouse loan” from Merrill Lynch to First Franklin. The loan paper went to Merrill Lynch.

“The paper was all crap, and everybody knew it,” Locke said. “But Merrill Lynch also knew if it turned this stuff down, it wouldn’t get its money back from First Franklin.”

Merrill Lynch eventually ended up losing billions of dollars when the subprime mortgage market collapsed. The venerable financial giant was acquired by Bank of America in January 2009.

Despite Locke’s comments, the FBI contends Kuzmenko was a central player in the middle of a huge mortgage fraud. According to court documents, Andreyev indicated to agents that Kuzmenko devised a plan that resulted in him getting $850,000 in loans to buy the house, and that she told him he could simply stop paying the mortgage after six months.

Andreyev told the FBI he got $150,000 in kickbacks from Kuzmenko after buying the house, and that he kept $70,000 to $80,000 of it, court documents state. He gave the rest back to Kuzmenko, he claimed, following her instructions to withdraw it from the bank in cash amounts of less than $10,000 to avoid catching the attention of the Internal Revenue Service.

He stopped making his mortgage payments after six months, and the house went into foreclosure in August 2008. Officials say losses to lenders on that deal totaled $368,000, but that with a flood of mortgage fraud cases swamping the Sacramento region’s IRS and FBI offices, it wasn’t until 2010 that agents began to zero in on what happened on Lucera Court.

Since then, two FBI agents and an IRS agent have conducted more than 200 interviews investigating various cases, and still are pursuing leads.

Problems with mortgage fraud in the region extend far beyond the Slavic immigrant community. In the past year and a half, the U.S. attorney’s office in Sacramento has indicted about 150 people on mortgage frauds of some type, more than any other office in the country.

Officials expect the number of prosecutions to drop off because of changes in federal law since the meltdown that restrict lenders from approving “liar loans” like the one Andreyev allegedly obtained.

“Part of it is that the Wild West, egregious free-for-all scamming that was going on a few years ago is a lot less common now,” Wagner said. “With the market sort of stabilized as it looks like it’s doing, those kinds of cases will start to dry up.”